Profit margins of premium hotels may dip in FY13, FY14: Ernst & Young

MUMBAI: The profitability of premium hotels is expected to dip marginally this fiscal and the next if the global economic condition does not improve, says a survey.

According to a Ficci-Ernst & Young report titled 'Realty in changing times', the global slowdown is likely to impact operating margins of premium hotels, which is expected to drop to around 18 per cent this fiscal and the next.

"The profitability of premium hotels is expected to dip marginally in FY13 and FY14, if the global economic condition does not improve," the report said.

This slowdown is also likely to impact occupancy rates, which has fallen to as much 62.1 per cent in 2012 so far, it said.

"If the global slowdown continues, it is likely to impact occupancy rates to 60 per cent in FY13 and FY14," the report said.

Besides, slowing demand growth and large-scale room additions will cause occupancy rates of premium hotels to further slip, it said.

According to the report, in 2011, domestic tourist visits increased to 851 million, an increase of 13.8 per cent, on account of the weakening rupee and extension of visa on arrival scheme to 13 countries.

As per the 12th Plan, domestic tourists are likely to grow to 1,451 million and foreign tourist arrivals are likely to touch 11.24 million by 2017.

"With domestic travelers likely to account for 99 per cent of tourists, it is imperative to have hospitality products catering to domestic demand," it said.

The report further said demand for budget and mid-market segment hotels is likely to increase in the coming years.

"Cost-cutting measures by the corporate sector will help in increase the demand for budget and mid-segment hotels in the future," it said.